Healthy tenancy ratio growth and further consolidation expected in Myanmar towers in 2017

Myanmar remains an exciting tower market though not without its challenges. The country has seen rapid uptake in mobile subscriptions, with SIM penetration rising from ten per cent two-and-a-half years ago, to now between 75-80%. With seven towercos serving the marketplace and inclusive of operator-captive towers, there are approximately 16,500 tenancies on 12,030 towers in the country. At TowerXchange’s 3rd Annual Meetup Asia in December 2016 in Singapore, our esteemed panelists from edotco, Apollo Towers Myanmar, Myanmar Infrastructure Group (MIG), Shining Star International Holdings Limited, and Overseas Private Investment Corporation (OPIC) shared their views on last year’s developments and what to expect for the coming 12 to 18 months.

While tower build had naturally slowed down for the second half of 2016, most agree this was temporary, partly due to reduced capex allocated by the operators and their focus on urban areas (infill) to support data demand, which has exceeded expectations. Operators are said to focus on the biggest bang for the buck, with eyes to special structures such as billboards and lampposts to provide additional coverage, as well as rooftops. In many cases, such builds were undertaken by the operators, mostly because they were single tenant sites that cannot be shared, plus the economics do not make sense for towercos (the rental costs for urban rooftops is often prohibitively high to sustain towerco margins). Between Apollo and MIG, they are said to have rejected 10-20% of such build requests.

However, there is much to look forward to in 2017 and beyond, as organic tower growth is expected to pick up on the backs of the 1,800MHz spectrum auction in Q1 and the eventual enforcement of the operators’ licensing conditions around rural coverage. In addition, several new fixed line operators were awarded 2,600MHz licenses that could require as many as 14,000 sites. One approximation is that if currently 7,730 towers in Myanmar have been built by towercos, this number could grow to 15-16,000 in the next four years.

The reality is tower counts are unlikely to grow at the same rate as during the initial rollout, but co-location on existing towers are growing, and this is further buoyed by the imminent entry of the fourth operator, a consortium led by Vietnam-based Viettel.

The tenancy ratio for edotco is currently at 1.9 while MIG is already at 1.6 on a fairly modest portfolio of approximately 100 towers. Both towercos expect to hit 2.0 in next 12-18 months. In any market, growth of 0.2 per year is indication of healthy growth and a generally good lease-up environment.

The general consensus seems to be that Viettel is doing its primary planning around co-location of existing towerco sites, with the odd sites for infill to match the radio plans. Co-location appears to be the quickest way for Viettel to launch its network around August or September 2017. Viettel’s go-to market strategy tends to be more suburban and rural, perhaps anticipating a slightly lower ARPU. While Viettel has in the past built its own towers in other markets, that deployment and rollout strategy is not expected to work in Myanmar since the conditions, rules, and regulations are much tougher in comparison.

All three operators MPT, Telenor and Ooredoo are expected to take part in the 1,800MHz spectrum auction in the new year, which could be held as soon as March, to help with their 4G roll out. Ooredoo was the first to launch 4G, followed by Telenor, then MPT recently in the Fall.

It is generally agreed upon the market cannot sustain seven or eight towercos in the long run and towerco on towerco consolidation is the most likely natural progression. One important factor is whether the buyer and seller share a similar DNA and similar customers. Due to market and customer demands, most towercos in Myanmar have evolved to provide a tower+power model. However, some legacy assets are still run on a pure steel and grass set up, with energy assets operated by a third-party like IPT PowerTech (edoto and PAMEL) and some as a full-service provider (MIG and Apollo).

While there is a will to consolidate in the industry, overcoming the contractual differences between towercos and their clients will be challenging. Every contract has subtle differences, and something like the “most favoured customer” (MFC) clause, which guarantees the anchor tenant the best lease rate, could have negative impact on the other portfolios when two towercos come together. This was said to be more of an issue for legacy towercos than newer entrants who tend to already be at the common lowest denominator.

In terms of potential buyers in 2017, edotco has expressed its commitment to be in Myanmar for the long-term, with a focus on organic growth while looking at inorganic growth opportunities as they become available. MIG is now backed by an investor in Shining Star who believes in the investibility of the tower industry, and is keen on further acquisitions pending the performance and results of its first towerco acquisition.

The only transaction in 2016 was the sale of Myanmar Infrastructure Group (MIG) by Singapore Myanmar Investco (SMI) to Hong Kong’s Shining Star International Holdings Limited for US$12.7mn. While Shining Star is new to the tower business, it is a real estate veteran and sees similarities between the two industries. The company entered the Myanmar market two years ago and is keen to expand their portfolio within the country beyond real estate. By following China’s One Road, One Belt policy, Shining Star is able to tap into good financing from domestic banks and other financing resources. Its headquarter in Yunnan also puts it in close proximity to Myanmar which is a plus. All in all, MIG is now backed by an investor with optimism for the marketplace and an appetite to do more.

On the debt and equity financing side, through its backers TPG and Tillman Global Holdings, Apollo Towers secured US$250mn in debt from Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution. Commercial banks in general are said to be still nervous about the market, with lingering concerns about the sanctions programme taking time to ease. And while sanctions are being lifted now, commercials banks are still concerned about who they’re doing business with. Entrepreneurial investors have also expressed interest in the market place and been active in pitching their ideas to OPIC. With the political transition over the last nine months, OPIC is hoping to see more investors in the space.

In general the towercos on the panel remain optimistic on the opportunities within the marketplace for the coming year. While the grid and power remain a challenge, the towercos are committed to meeting their SLAs on uptime and continuing to provide value to the operators and marketplace as a whole.